Finally, CRA Reform…Just Kidding
Congress passed the Community Reinvestment Act (CRA) in the late 1970’s to encourage banks to meet the credit needs of communities they serve, especially low-moderate income (LMI) areas and individuals, and address systemic inequities in access to credit. The last major interagency update to the rules happened in 1995. That’s right – 1995! Just think about all the technological changes that have occurred in the past 30 years not just in society, but in banking in the past 30 years. So it’s not surprising that the regulatory agencies took a hard look at CRA and in an effort to modernize the law, came out with a new final rule in October 2023.
The new rule would have (notice the past tense!) tailored performance standards to account for a bank’s size, individual business model, and local conditions. It aimed to promote consistency in evaluating banks, while reducing complexity in data requirements and addressing significant changes in the banking industry over the last 30 years. Banks and software vendors began the arduous task of researching, planning, and revising processes and systems in preparation for implementation while conversely several banking associations and trade groups banded together to challenge the legality of the final rule. Cases against the revised rule alleged that modernization efforts exceeded the regulatory agencies’ authority and would have disincentivized banks to invest in their communities.
Fast forward to March 28, 2025, when the FDIC, FRB, and OCC announced their intention to rescind the final rule issued in 2023. No doubt those trade associations, and likely most banks, are pleased that the CRA framework in existence prior to October 2023 will remain intact. A link to the press release is included below.
As for all the prep work underway, scrap it and consider it another regulatory burden lifted. It’s back to business as usual… for now.